The Politics of the Public Option

Reprinted from Consortium News

From the start, the health-reform debate has been about money – who will get the best break and who may have to pay more. That is why the issue of the public option, a less expensive government-run insurance plan, has been so central to both the policy and political debates.

Indeed, if the Democrats abandon the public option for the sake of passing a bill like the one that came out of the Senate Finance Committee, they may be courting electoral disaster once voters grasp that they will have to wait years for the law to be implemented and then that it could lead to higher costs for much the same unpopular private insurance plans.

The public option offers the only means for a reform to be quickly implemented and to demonstrate a beneficial effect for the people by 2010 and 2012. It has the potential for reducing costs, especially for small businesses and individuals who are now being soaked by private insurers or denied coverage.

After assessing the five pieces of legislation that have cleared different committees of Congress, the non-partisan Congressional Budget Office found that the nation would get the most savings on health-care costs from a public option tied to Medicare rates. Such a version, which is included in two of the House bills, would save an estimated $110 billion over 10 years.

A more modest public option in another House bill, which de-links the rates from Medicare and would require negotiations with health-care providers, would save an estimated $25 billion, the CBO says. By contrast, the co-op idea in Sen. Max Baucus's Finance Committee bill would cost $6 billion to set up and would garner few if any savings.

Since the co-op would offer minimal competition, the health-insurance industry doesn't object to it but is dead set against the public option. The reason is obvious: many of those projected savings would come out of the industry's bottom line.

What the industry does want is a bill that forces nearly 50 million uninsured Americans, including healthy young people, to buy private insurance, many with government subsidies, a potential bonanza. The industry also wants the federal government to act as the enforcer to coerce these people by hitting them with stiff fines if they don't sign up.

The level of government coercion is important to the industry. This week, America's Health Insurance Plans, the industry's lobbying arm, broke with the industry-friendly Baucus bill because of its relatively weak penalties of only a few hundred dollars a year assessed against people who don't buy insurance.

AHIP feared that the fines wouldn't be coercive enough to force young people to buy insurance. Therefore, the industry worries that many of the new sign-ups would be customers the industry doesn't want, people who actually need medical attention.

So, industry lobbyists warned that if Congress didn't raise the fines on the uninsured, the industry would jack up its premiums across the board. "The consequences of this would be an upward spiral; rate shock to everyone who stays in," AHIP president Karen Ignagni said. [Washington Post, Oct. 9, 2009]

Risking a Backlash

In firing that shot across the bow of Congress, the industry did risk a backlash, the possible revival of the public option, the industry's biggest worry since the debate began last spring.

Early in the congressional battle, Republicans cited an industry-sponsored study by the Lewin Group, projecting that the inclusion of a public option could lead to the defection of 119 million Americans from private insurance to the government-run plan.

“As many as 119 million Americans would shift from private coverage to the government plan,” Sen. Chuck Grassley, R-Iowa, wrote in a column for Politico.com. That migration, Grassley said, would “put America on the path toward a completely government-run health care system. " Eventually, the government plan would overtake the entire market.”

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